KONE CMD 2018
Our path towards the financial targetsILKKA HARA, CFO
SEPTEMBER 25, 2018
FINANCIAL OVERVIEW
TOWARDS OUR FINANCIAL TARGETS
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation3
Financial overview
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation4
Growth in orders received at comparable exchange rates ▪ In 2018, orders
received has grown
in all regions and in
all businesses
Orders received have returned to growth
-6%
-4%
-2%
0%
2%
4%
6%
8%
6.3%
Q2
2016
Q3
2015
Q3
2016
6.4%
2.1%
Q1
2017
Q4
2015
Q4
2017
Q1
2015
Q1
2016
5.3%
Q2
2015
Q1
2018
Q4
2016
Q2
2017
-1.2%
Q3
2017
Q2
2018
5.5%
3.3%3.6%
7.0%
-4.3%
1.1%
-1.9%
-2.9%
6.8%
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation5
Gross margin of orders receivedIllustrative
▪ The lead time from
orders received to
sales in the Chinese
volume business is
around 9 months
Margin of orders received has stabilized
Q1
2018
Q3
2016
Q1
2016
Q4
2016
Q1
2015
Q2
2015
Q4
2015
Q3
2015
Q2
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q2
2018
RAW MATERIALS/COMPONENT COSTS Y/Y:
LIKE FOR LIKE PRICES IN CHINA NEW EQUIPMENT Y/Y:
Stabilization of the
margin of orders
received (y/y) started
during Q4/2017
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation6
Sales growth 2013-2017MEUR
H1/2018 sales growth at
comparable currencies:
▪ New equipment 6.8%
▪ Services 6.1%
Sales growth has recently been driven by services, new equipment growth starting to now recover
FXAcquisitionsNew
equipment,
organic
Service,
organic
2013
6,933
New
equipment,
organic
8,647
8,942
FXService,
organic
2015 2017Acquisitions
Organic sales growths based on estimated acquisition impacts. 2017 sales as reported, not restated for IFRS 15 and IFRS 9
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation7
Adjusted EBIT growth 2013-2017MEUR
Adjusted EBIT recently burdened by profitability headwinds and currencies
FX 20172015
1,230
2013 Growth Profitability
(incl. mix)
Profitability
(incl. mix)
FX Growth
954
1,242
2017 adjusted EBIT as reported, not restated for IFRS 15 and IFRS 9
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation8
▪ Recent trade tensions have weakened
several of KONE’s key currencies against
EUR
▪ With current spot rates, FX estimated to
have MEUR ~45 negative impact on 2018
adjusted EBIT
▪ With current spot rates, FX estimated to
have a somewhat negative impact on 2019
adjusted EBIT
KONE’s foreign exchange exposure
Sales by currency 2017
Foreign exchange rates continue to be a headwind
Others
EUR
RMB
USD
H1/2018
average
Sep 20, 2018
spot
EUR / RMB 7.7119 8.0559
EUR / USD 1.2060 1.1769
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation9
▪ Higher raw material prices continue to
be a headwind still in 2019
▪ New trade tariffs for steel and aluminum
imports to US and for several products
imported from China to the US
Estimated to have roughly MEUR 10
impact in 2019, visibility to the impact is still
limited
Raw materials and trade tariffs put further upward pressure on component prices in 2019
MEUR 2018 2019
Impact from raw materials
and tariffs~100
A headwind but less
than in 2018
Steel (stainless, hot-rolled, billets)
Aluminium
Copper
Rare earths
Car fuel
KONE’s raw material exposure is >5% of sales
Indicative
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation10
Capital allocationMEUR
2017:
▪ Capex 1.3% of sales
▪ Acquisitions 0.4% of
sales
▪ We have also
increased our R&D
and IT spend by 80
bps as % of sales from
2013 to 2017
Cash flow – capital allocation
Cash flow from operations 2013–2017 MEUR
181 226 132 110
1,032
1,510
1,3421,120
-68
2013 2014 20162015
1,400
1,331
2017
1,2131,345
1,474
1,263
EBITDA
Change in NWC
77 98 116 11052 67
82 35
184 206 23
331299
512616
718
795849
2014 20162013
7893
2015 2017
972852
900
1,324 1,292
Capex
Acquisitions
Other incl. financing items and taxes
Dividends
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation11
Split-adjusted dividend per class B share 2000–2017EUR
▪ Dividend payout in
2017: 87% of
earnings per share
▪ Effective dividend
yield, 2017: 3.7%
Adjusted for share splits in 2002 (1:3), 2005 (1:2), 2008 (1:2) and 2013 (1:2)
Good financial development has enabled a steadily increasing dividend
2002
0.330.06
0.33
2000
0.19
2001 2010
0.25
2003
0.25
0.45
20082004
0.65
0.250.09
2005
1.65
0.25
2006 2007
0.33
2012
0.33
20152009
0.70
1.00
0.75
2011
0.88
2013
1.20
2014
1.401.55
2016 2017
Ordinary dividend
Extraordinary dividend
CAGR: +21 %
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation12
Towards our financial targets
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation13
We remain committed to our financial targets
GROWTH
PROFITABILITY
CASH FLOW
Faster than market growth
Improved working capital rotation
16% EBIT margin
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation14
▪ Customers’ payment terms have
remained on a good level
▪ Opportunities to improve inventory
rotation
▪ Continuous improvements in
accounts receivable and accounts
payables
Strong cash generation is a continuous area of focus
Improved working capital rotation
0.2
0.0
0.4
0.6
0.8
1.0
1.2
0.7
Q1 2017 Q2 2018Q3 2017Q2 2017 Q4 2017 Q1 2018
1.1
0.9 0.9
1.0
1.2
Cash conversion has remained on a good level
Cash flow from operations*/EBITDA
* Before financing items and taxes
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation15
HOW WE PLAN TO ACHIEVE IT
Continued faster than market growth in new equipment
FOCUS ON
OUTCOMES
FOR
CUSTOMERS
NEW
SERVICES AS A
DIFFEREN-
TIATOR
INNOVATION
BUILDING
COMPETEN-
CES IN THE
GROWTH
MARKETS
Faster than market growth
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation16
Strong position in new equipment a great backdrop for faster than market growth in services
IMPROVING
CONVERSION
AND
RETENTION
THROUGH
DIFFERENTIATI
ON AND
SERVICE
MINDSET
NEW REVENUE
STREAMS AND
BUSINESS
MODELS
CAPTURING
THE MODERNI-
ZATION
OPPORTUNITY
BUILDING
COMPETEN-
CES
Faster than market growth
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation17
OUR ULTIMATE TARGET IS TO IMPROVE THE ABSOLUTE EBIT
There are several levers for profitability improvement
CUSTOMER FOCUS, SPEED AND EFFICIENCY PROVIDED BY THE ACCELERATE PROGRAM
16% EBIT MARGIN TARGET
CUSTOMER
SATISFACTION
QUALITY AND
PRODUCTIVITYGROWTH DIFFERENTIATION
HIGHER
RETENTIONCOST COMPETITIVENESS
ECONOMIES
OF SCALE
BETTER PRICING FROM
UNIQUE VALUE
TO CUSTOMERS
16% EBIT margin
18
Accelerate: customer centricity, speed and efficiency
January 2017
Launch of
Winning with
Customers
strategy
November 2017–
June 2018
Several organizational
changes initiated, e.g. in
HR, Finance, Sourcing
2020
Accelerate
program
completion
2017 2018 2019 2020
Estimated savings,
2019: MEUR ~50
Estimated run rate savings by
the end of 2020: MEUR 100
Estimated costs MEUR 100, whereof the majority are expected to accrue over the first two years
25 September 2018 Ilkka Hara | KONE Capital Markets Day 2018 | © KONE Corporation
September 2017
Accelerate program
launched to speed up the
execution of KONE’s
strategy and to support
profitable growth
Summary
▪ We are well on a growth track
▪ Profitability is burdened by
several headwinds, however,
orders received margin has
stabilized
▪ We are committed to our
financial targets
Top Related